Measures for MSMEs under Prime Ministers (PMs) ‘Atmanirbhar Bharat Abhiyaan’ (Self- Reliant India Movement)

A. Background

On 13th May 2020, the Prime Minister Shri Narendra Modi announced his Vision calling for ‘Atmanirbhar Bharat Abhiyaan’ (Self- Reliant India Movement). He proposed Five pillars of Atmanirbhar Bharat (1) Economy (2) Infrastructure (3) System (4) Vibrant Demography and (5) Demand.

*Prime Minister’s pledge of a total spending of Rs 20 lakh crore to weather the fallout of coronavirus pandemic is among the largest economic stimulus package announced by nations around the world. It is about 10 per cent of India’s GDP in 2019-20 and would rank behind Japan, the US, Sweden, Australia and Germany. However, unlike the most relief packages announced globally, Rs 20 lakh crore is not entirely in new spending and includes Rs 1.7 lakh crore package the government had announced in the month of March as well as the steps taken by the Reserve Bank of India (RBI) such as liquidity enhancing measures and interest rate cuts etc.

*Source: https://www.thehindu.com/business/businesslive-13-may-2020/ article31571094.ece

PM also declared that Finance Minister, Smt. Nirmala Sitaraman and Reserve Bank of India (RBI) will be announcing various package to cater to various sections including cottage industry, MSMEs, labourers, middle class, industries, among others. This announcement is to bring liquidity and not related to fiscal measures.

Apart from Prime Minister’s Garib Kalyan Package, there are certain measures announced for MSME sector also. Various Schemes have been formulated as a specific response to the unprecedented situation caused by COVID-19 and the consequent lockdown, which has severely impacted manufacturing and other activities in the MSME sector. In view of the critical role of the MSME sector in the economy and in providing employment, the proposed Scheme is expected to provide much needed relief to the sector. Out of the total 15 measures announcements , around 7 measures were directly relating to MSMEs and few others have a sizeable bearing on the viability and operations of MSMEs.

‘MSME’ is used for Micro, Small and Medium Enterprises. In a developing country like India, MSME are the backbone of the economy and is contributing almost 30% to India’s GDP. About half of exports (data by Directorate General of Commercial Intelligence and Statistics (DGCIS), MSMEs play a significant role in the economy.

It is a well-known fact that in the global supply chain, China plays a very pivotal role for India and its MSME sector as well, this sector is largely dependent on China for its raw material. Thus complete lockdown in India has led to various issues ranging from shrinkage of exports, cessation of production, non-availability of manpower, the uncertainty of consumption, and liquidity squeeze in the market as well. The far-reaching impact of COVID-19-Pandemic continues to evolve. Though the Indian government is taking enormous measures to curb the loss caused by global pandemic, MSMEs were grappling for stability when sales and revenue remained at standstill due to prolonged lockdown. MSMEs needed a fiscal stimulus.

Finance Minister, Smt. Nirmala Sitharaman addressed the media on May 13, 2020 announcing few economic measures under Rs.20 Lakh Crore, ‘Atma-Nirbhar Bharat Abhiyaan’ mission to revive the economy of the Country amidst the COVID-19 pandemic. The package also announced bold reforms to boost businesses with the major focus on the MSME sector. The Finance Minister redefined the MSME and added the additional criteria of turnover along with the investment.

B. The Existing Definition of MSME

In accordance with the Micro, Small, and Medium Enterprises Development (MSMED) Act in 2006, the enterprises are classified into two divisions:

1. Manufacturing enterprises – engaged in the manufacturing or production of goods

2. Service enterprises – engaged in providing or rendering services

Existing MSME Classification
Criteria : Investment in Plat & Machinery or Equipment
Classification Micro Small Medium
Mfg.

Enterprises

Investment

<Rs.25 lac

Investment

<Rs.5 cr.

Investment<Rs.10 cr.
Services Enterprise Investment

<Rs.10 lac

Investment

<Rs.2 cr.

Investment <Rs.5 cr.

C. Revised Definition of MSME

Low threshold in MSME definition had created a fear among MSMEs of graduating out of the benefits and hence killing the urge to grow. In order to redefine the MSME, Government has taken following measures:

– Increased the Investment Limit

– Introduced additional criteria of turnover

– Eliminated difference between Manufacturing & Service sector

– Necessary Amendments to law will be made

Revised MSME Classification
Composite Criteria : Investment and Annual Turnover
Classification Micro Small Medium
Manufacturi Investment Investment <Rs.10 Investment <Rs.20
ng <Rs.1 Cr. and Cr.     and Cr.
& Turnover <Rs.5 Turnover <Rs.50 and
Services cr. cr. Turnover <Rs.100 cr.

To take benefit, the enterprise need to register its entity as MSME with Udyog Aadhaar Registration

D. Procedure for registration as an MSME

1. Government of India has initiated the Udyog Aadhaar Registration process. Earlier, if you wish to start a business and get SSI registration or MSME registration, you needed to go through a lot of paperwork. Now, you need to fill only

2 forms as follow.

2. Entrepreneur Memorandum-I and Entrepreneur Memorandum – II instead of 11 different types of forms that were required earlier.

3. The Udyog Aadhar Registration is a completely online process (https://www.msmeregistration.org/) which is totally free of cost. Industries registered with Udyog Aadhar become entitled to receive the benefits of several schemes of Government like subsidies, easy loan approvals etc.

4. After submitting the form, an acknowledgment form is released to the registered email of the applicant containing the unique UAN (Udyog Aadhaar Number).

5. Only Manufacturers and Service Providers are eligible to take registration. Traders/Wholesalers are not covered. Any Form of Business whether it is Proprietary Concern, Partnership Firm, LLP or Company is eligible to take registration. There is no discrimination regarding the constitution of business.

E. Documents required for Udyog Aadhar Registration

1. Aadhaar Number- Twelve digit Aadhar number which is issued to the applicant. This Aadhaar number in case of Proprietary Enterprise must be of the Managing partner, of Authorised Partner for Partnership Enterprise and of Authorised Person for Other forms of Enterprises.

2. Name of Owner/Promoter- The name of applicant as provided in the Aadhar Card.

3. Category- General / Scheduled Tribe (ST)/ Scheduled Caste (SC) / Other Backward Castes (OBC)

4. Business Name- Name of the of Entity under which it is conducting its business. One applicant could have more than one enterprises and each one could be registered individually with the same Aadhaar Number for a separate Udyog Aadhaar.

5. Type of Organization- Type of Business entity or Legal Entity. (Proprietorship, Partnership Firm, Hindu Undivided Family, Private Limited Company, Co-Operative, Public Limited Company, Self Help Group, LLP, Others).

6. Address- Postal Address of the business for communication purposes including contact numbers and email address.

7. Date of Commencement- The commencement date of the respective businesses.

8. Previous Registration Details (if any)- Details of any previous MSME registration.

9. Bank Details- Banking details of the of the company which includes Bank Account number and IFSC Code.

10. Key Activity- Key areas of activity of the business –service or manufacturing.

11. National Industrial Classification (NIC) Code- The NIC Code must be entered from the National Industrial Classification handbook. The Applicant might select multiple National Industrial Classification-2008 (NIC) Codes for including all of its activities.

12. Number of persons employed- The number of employees in the business.

13. Investment in Plant & Machinery / Equipment- Total amount investment in terms of machinery and equipment by the business.

14. District Industry Center (DIC)- The details of the DIC (District Industry Center) nearest to such business, if needed.

F. Benefits of Udyog Aadhar Registration

1. After registering their MSME, the applicant will receive the benefits of all schemes announced by the Government for MSME like subsidies, easy loan, loan without guarantee, loans with subsidized rates of interest and many more.

2. Such MSME will receive financial support for participating in foreign expos to showcase their products.

3. The Registration as MSME would facilitate hassle-free opening of current bank accounts in the name of the business.

4. It would also allow businesses to apply for government micro business loans and other such related beneficial schemes.

5. MSMEs are also entitled to the different tariff for the electricity as compared to Non MSME registered business, it also brings reduced cost to the business and more profit in hand.

If the enterprise is registered as MSME it will be entitled to various measures announced by Government under the ‘Atma-Nirbhar Bharat Abhiyaan’ for MSME

G. Measures taken by Government for MSME under Atmanirbhar Bharat

1. Rs. 3 Lakh Crores Collateral free Emergency Credit Line

The Scheme aims at mitigating the economic distress being faced by MSMEs by providing them additional funding of up to Rs. 3 lakh crore from Banks and NBFC as Emergency Credit Line (ECL) upto 20% of entire outstanding credit as on February 29, 2020, which will be fully guaranteed by the Government and no collateral is required by the Bank / NBFC. The move is expected to help 45 lakh companies to revive their businesses and also boost their liquidity and working capital base as well. Following are the brief features of this Scheme.

i. Borrowers with up to Rs. 25 Crore outstanding and Rs. 100 Crore turnover eligible to avail benefit under aforesaid scheme.

ii. The tenor of loan under the Scheme shall be 4 year with moratorium period of 12 months on Principal repayment

iii. Interest to be capped at 9.25% for banks and FIs, and at 14% for NBFCs.

iv. 100% credit guarantee cover to Banks and NBFCs on principal and interest

v. Scheme can be availed till 31st October, 2020

vi. No guarantee fee, no fresh collateral.

2. Rs. 20,000 Crores Subordinate Debt for stressed MSMEs

This Scheme will support MSMEs to restart their business and produce new jobs. Functioning MSMEs which are NPA or are stressed will be eligible. This Stressed MSMEs need equity support.

Following are the brief features of this Scheme.

i. This Scheme is likely to benefit over 2 lakh MSMEs

ii. Government will provide support of Rs. 4,000 crore to Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), which in turn will provide partial credit guarantee support to Banks.

iii. Promoters of the MSME will be given debt by banks, which will then be infused by promoter as equity in the Unit.

3. Rs. 50,000 Crore Equity infusion through MSMEs through Fund of Funds

Under this Scheme, Rs.10000 crore fund/ corpus to be set up to bring equity which is acutely short in MSME. MSME can expand its business and enable to get listed on main board of Stock Exchanges. Following are the brief features of this Scheme.

i. The Ministry will soon set up a Fund of Funds with a corpus of Rs 10,000 Crore that will provide equity funding for MSMEs growth potential and viability.

ii. The fund will be operated by a Mother fund and will have a few Daughter funds.

iii. The fund will infuse Rs. 50,000 Crore at daughter funds level.

4. Global tenders to be disallowed upto Rs. 200 Crores

One of the most important interventions as part of the announced Package is to say that in Government procurement, there would be no global tendering upto Rs. 200 crores. Earlier, only 20 per cent was reserved for domestic MSMEs, including 3 per cent for SC/ST entrepreneurs and another 3 per cent for women entrepreneurs. This will, help the domestic companies in general and on the other hand it will also help the MSMEs of the country in particular. These units are not able to withstand the pressure of undue competition from Companies of other countries. Following are the brief features of this Scheme.

i. To boost Self-reliant India, Make in India and Vocal about Local initiatives, Global tenders will be disallowed in Government procurement tenders upto Rs. 200 Crores.

ii. Necessary amendments of General Financial Rules will be effected.

5. Other measures for MSME

Various other measures taken are as follow which will help MSME to sustain, grow and relieved from compliance burden.

i. In the present circumstances, physical trade fairs and exhibitions would be difficult. The announcement to promote e marketing linkage would go a long way in helping the MSME Sector. E-Market linkage for MSMEs to be promoted to act as a replacement for trade fairs and exhibitions.

ii. Fintech/ digitization will be used to enhance transaction based lending using the data generated by the e-marketplace.

iii. Government has been continuously monitoring settlement of dues to MSME vendors from Government and Central Public Sector Undertakings. MSME receivables from Government and CPSEs to be released in 45 days.

iv. 24*7 custom clearance till 30th June, 2020.

v. statutory Provident Fund contribution of both employer and employee will be reduced to 10% each from existing 12% each for all establishments covered by EPFO for next 3 months.

vi. The announcements that TDS and TCS will be reduced by 25% and that all refunds to entities including Proprietorship, Partnership firms and LLP etc. would be issued immediately, will also help the liquidity situation of MSMEs.

vii. Similarly, the extension in the compliance date of various income-tax related deadlines is also very satisfying. The small units will now have a peace of mind and will focus on work and productivity for next few months.

Conclusion During this extraordinary epoch with uncertainty to restore the normalcy, the Government announced package/ measures for relief to MSME, by incentivizing Member lending institutions to provide additional credit of up to Rs.3 lakh crore to the sector at low cost, thereby enabling MSMEs to meet their operational liabilities and restart their businesses.

However, the Scheme announced by Government has not provided any kind of relief to MSME when they are short of cash and liquidity for payment of salary or wages to their employees and workers as their order is dried up and uncertainty of demand in near future. In this situation MSME has not expected any borrowings, even at a low cost and thus Government has failed to impress MSMEs terming it frivolous and gimmicky. Although, it is expected that the Scheme will have a positive impact on the economy and support its revival. Now much depends on the speed of implementation of the Scheme announced.

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The content of this article is intended to provide a general guide to the subject matter. Specialist professional advice should be sought about your specific circumstances. The views expressed in this article are solely of the authors of this article. Should you have any queries on any aspect contained in this article, you may contact the author by way of an e-mail or write to us at amita@amitadesai.com.

Author Bio

Qualification: CS
Company: Amita Desai & Co
Location: Mumbai, Maharashtra, IN
Member Since: 04 May 2017 | Total Posts: 27
Amita Desai is a Fellow Company Secretary and Insolvency professional in practice since 1995 Her expertise lies in following .She can be reached at amita@amitadesai.com 1. Business and Legal Advisory on Corporate Law 2. Foreign Exchange Management Act 3. Drafting and Appearance before Tribunal View Full Profile

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